US tariffs on its $1bn sugar imports from Mexico could prove
"painful" to the likes of Archers Daniels Midland, Cargill and Tate & Lyle
if it spurs tit-for-tat levies on trade in corn-based sweeteners, Credit Suisse
warned.

Indeed, a decision by Mexico to retaliate through tariffs on
US exports of high fructose corn syrup (HFCS), would likely have a "disastrous
impact" were it not for the low price of the corn used to maker the sweetener,
and the concentrated nature of the US industry.

Although the loss of trade to Mexico would in theory deprive
HFCS producers of a market equivalent to 15% of production, cutting their
capacity utilisation rate to 70% and threatening a slump in profits, "the
industry has a reputation for supporting a disciplined pricing structure",
Credit Suisse said.

"This includes mothballing capacity when utilization rates
get a little low. We would be very surprised if Cargill or ADM didn't close a
site if capacities start to become a little loose."

'Flood of Mexican
sugar'

The comments followed the US government's announcement this
week that it was proposing the tariffs on sugar imports from Mexico as an anti-dumping
penalty, following pressure from domestic producers.

The American Sugar Alliance claims that the "flood of
Mexican sugar" into the US, of some 2m tonnes a year, "which is harming
America's sugar producers and workers, is subsidised by the Mexican government".

Mexico has termed the proposed levy as running counter to Nafta
trade agreements, and as a "backwards step in the integration and delicate
balance in the sweeteners market in Mexico and the US".

It is uncertain yet that Washington will introduce the levy,
which would not be imposed until early next year, or indeed that Mexico would
retaliate by targeting HFCS, a rival sweetener to sugar in the likes of soft
drinks, and which the country largely imports from the US.

'Not pretty'

However, history suggests that, if a levy is imposed, or
even if Mexico's excess sugar simply supplants HFCS at soft drinks groups, the impact
will be severe for US makers of the corn-based sweetener.

In the mid-1990s, Mexico imposed a tariffs against HFCS
imports from north of the border which saw profits "collapse" at the US industry,
prompting a the takeover of some independent co-operatives, MCP and ProGold,
and the withdrawal of Golden Technologies, Credit Suisse said.

Ingredion, then Corn Products International, "saw a $160m
profit in 1995 fall to a loss of $30m in 1997 – not pretty", the bank said.

It was only in 2010 that Mexico opened fully its borders to American
HFCS, by which time the US industry had consolidated around the current, few producers.

The comments came as Credit Suisse restated an "underperform"
rating on shares in Tate & Lyle, which relies on US HFCS for some 30% of
profit.